Accounting Standards for Small and Medium-sized Entities (SMEs)
The staff noted that the Working Group would meet next in June 2005 and that the Board intended to hold round-table discussion later in the year, most likely in October 2005.
The Board noted that goal of this project was to develop accounting standards suitable for entities that (a) do not have public accountability and (b) publish general purpose financial statements for external users. They discussed both attributes.
The Board agreed that there was a need to clarify what the Board understood 'public accountability' to imply. Filing financial statements with Companies House or with the taxation authorities did not, by itself, create public accountability. The Board could usefully provide a commentary on the Framework on this issue.
In addition, the Board should define what it meant by 'general purpose financial statements' and 'external users'. Most importantly, the Board should define what external users are not: e.g., management and parties permitted by contract or operation of law to demand additional financial information from the entity.
General purpose financial statements are financial statements prepared for investment or credit decisions, etc, to be made by those without any other access to financial information.
After discussion, the Board agreed that their current definitions of public accountability, external users, and general purpose financial statements are appropriate as a 'working principle' for defining the entities included in the scope of the project.
Presentation and disclosure
The Board agreed to direct the staff to prepare a presentation and disclosure questionnaire, similar to that prepared on recognition and measurement.
In doing so, the Board also debated, and decided to stay silent on, the following:
- The need for a cash flow statement
- If a cash flow statement was a necessary component of a set of SME financial statement, whether it should be prepared on the direct method
- Whether a SME should be required to prepare consolidated, consolidating or combined financial statements
There was agreement (but not unanimous) that the presentation and disclosure questionnaire should raise the possibility of standardising the format of the statement of changes in equity for SMEs (a single format for all SMEs). As an alternative, all of the options under IAS 1 should be retained pending completion of the Performance Reporting project.
Consolidated financial statements
The Board discussed whether it should raise the matter of exemption for SMEs from a requirement to prepare consolidated financial statements in that questionnaire, or whether the possibility of an SME exemption should be addressed as a potential recognition and measurement difference. The Board agreed that such a question should be asked. In addition, questions should be asked about:
- Whether the level of disclosure of related party disclosure was adequate or should be increased; and
- Whether disclosure of economic dependence should be required.